Ogan holds up natural gas bill

Legislature 2001

Gov. Tony Knowles and Rep. Joe Green have introduced bills allowing the governor to negotiate a package of deferred taxes and royalties with a developer of a natural gas project.

But the legislation to amend the Stranded Gas Act of 1998 is itself stranded in the House Special Committee on Oil and Gas.

That's because Chairman Scott Ogan wants to see actual proposals for gas commercialization projects before going ahead with a contract for state revenues to replace the existing tax and royalty structure.

Green, an Anchorage Republican, and Revenue Commissioner Wilson Condon emphasized during a committee hearing Tuesday that the idea behind the Stranded Gas Act was to lower upfront costs that could discourage developers from going ahead with a natural gas project.

That act limits eligible projects to the liquefied natural gas technology, based on the assumption three years ago that LNG shipments to Asia from Southcentral were the best prospect for commercializing the gas. The pending bills lift the restriction of LNG only, and the governor's bill also would push back an application deadline from June 30 to Dec. 31, 2001.

Ogan, a Palmer Republican, said he was comfortable delegating the negotiating authority to the governor in 1998, when the Legislature stipulated that any qualified project had to be LNG and there was good data about how it would work.

Now that the possibilities in the market have widened to include a pipeline route to the Lower 48 or a gas-to-liquids plant using the existing oil pipeline, he said he's reluctant to give away the Legislature's leverage without seeing specifics. The three major producers on the North Slope haven't said if or how they would bring gas to market.

"You reward the horse, after it comes in the barn, with the carrot," Ogan said.

Knowles, a Democrat, could quash any Republican objections to a negotiated contract by launching a public relations push to get the pipeline built, Ogan said. "He's real good at what he does, I've got to admit. Because he's real good at blaming us. ... When the train starts leaving the station, if you jump in front of it, it mows you over."

Green said the Legislature isn't powerless, noting strong objections to Knowles' original charter for the merger of BP Amoco and Atlantic Richfield. The Federal Trade Commission blocked the original deal, and "it was because we stood together as a Legislature," he said.

Condon, a former attorney general, also said lawmakers wouldn't be faced with a simple up-or-down vote on a negotiated contract, but could make changes. "Clearly, the Legislature establishes tax policy."

But Ogan said a literal reading of the Stranded Gas Act doesn't give him that impression. Instead, he'd prefer to see the governor introduce legislation that would spell out proposed terms for applying taxes and royalties. "In a bill, we have a lot more line-item, hands-on authority," he said.

Ogan also insisted on calling deferred taxes and royalties a "concession," a term resisted by Green and Condon.

Green noted other instances in which the state modified its royalty rate to keep oil projects viable. And he said failing to amend the Stranded Gas Act could give the industry the attitude "that maybe the state of Alaska isn't open for business."

"It's not a given that our gas is going to be a marketable product," given recent high prices and other gas discoveries, Green said.

"I hope that industry doesn't interpret it that we're not open to business," Ogan said. "(But) we need to be treated like an owner rather than a renter."